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Progresso:Ready-to-Serve the Industry           Margaret Gentile             Satoko Hirai             Chris Powers        ...
Agenda• Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Ch...
Executive Summary• High household penetration but moderate growth -  Single digit growth in ready-to-serve (RTS) soup indu...
• Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels...
Canned Soup:                                  A $3.1 Billion Industry   Units of canned soup sold (2007): ~2.2 Billion1   ...
Overview of the Soup Market                                Trends                                                         ...
• Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels...
Progresso’s Fit with General Mills                                                     Progresso             Progresso    ...
Competitive Analysis                                                                                 1                    ...
Progresso’s Pricing Strategy:                                                   Seasonal Aggressiveness                   ...
• Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels...
Women Dominate Selection…                                                            Initiator                            ...
…and Select Based on Flavor                      Criteria by Gender1                                 Criteria by Age1     ...
Targeted Ethnic Opportunities                       With chicken                       With noodles                       ...
• Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels...
Progresso Soup:                               Product Length and Depth                                                    ...
• Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels...
Growth of Soup Sales via Mass                     Merchandising         2008 Soup Sales By Retail Channel¹        Soup Sal...
Distribution Margins           Manufacturer                     Distributor                   Retailer            Consumer...
• Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels...
The Road Behind, The Road Ahead                    Strengths                                                              ...
Appendix
Margin Calculations  From 10K                                                                                       % Gros...
Projected        cash flows                                            NPV Calculations        in $ million               ...
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Marketingclassprojectii 13019382401354-phpapp02

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  1. 1. Progresso:Ready-to-Serve the Industry Margaret Gentile Satoko Hirai Chris Powers Matt Redmond Alex Sirkin Steve Wang
  2. 2. Agenda• Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels• Conclusion 2
  3. 3. Executive Summary• High household penetration but moderate growth - Single digit growth in ready-to-serve (RTS) soup industry• Two-horse soup race – Progresso and Campbell’s – Brand not important to customer• Fierce position competition• Still, more pressure – Low price private labels – Commodity inflation – Demands from distributors, especially Wal-Mart 3
  4. 4. • Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels• Conclusion 4
  5. 5. Canned Soup: A $3.1 Billion Industry Units of canned soup sold (2007): ~2.2 Billion1 Average price of canned soup (2007): $1.431 2 2 Sales by Type RTS Sales by Brand 5% 5% 7% 15% Ready-to-serve Campbells wet soup Progresso Condensed wet 49% 50% soup Healthy Choice Private Label 35% Ready-to-serve 35% broth Other RTS Dominates Progresso: Canned Soup Strong #2 Consumption1Calculated with equivalent unit data from AC Nielsen 52Mintel Report: Soups – US -- 2008
  6. 6. Overview of the Soup Market Trends Changes • 4-5 % growth/year • Key targets (2008-2012) 1 – Health-conscious – “On the go” people • Wal-Mart’s share of sales increase 1 • “Fresher is better” • Private label brands Biggest Worry growing fastest 1 • Raw materials costs 2,3,41 Mintel Report: Soups – US – 20082 Form 10-K, General Mills and Campbell Soup Company3 “Soaring grain prices affect many food costs” Seattle Post-Intelligencer, 15 Mar 08 64 AC710 Accounting Presentation – General Mills by Group 6 (“Six Sigmas”)
  7. 7. • Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels• Conclusion 7
  8. 8. Progresso’s Fit with General Mills Progresso Progresso Sales A&M Budget NPV4 Sales FY 20081 as % of GIS Growth3 Sales2 $565 Million 4% 16% $621 Million • Emphasis on wholesome product – Removal of MSG – Reduced sodium line • History of innovation – Birth of Progresso Light from G-WIN 5, 6 • Commitment to Corporate Social Responsibility – Susan G. Komen can1 Data from AC Nielsen2 For fiscal year 2008: total sales of Progresso sales from AC Nielsen divided by net sales on GIS 10-K3 Year-over-year growth from 2006 to 2007; Facenda, Vanessa L. “General Mills Outlook ‘Healthy’ with New Products, Increased Ad Spend.Brandweek .com Feb. 22, 20084 See Appendix, Slide 255 General Mills G-WIN website http://www.generalmills.com/corporate/open_innovation/index.aspx6 Jusko, Jill. “Happy Anniversary for General Mill’s G-WIN” Industry Week, 1 Jul 2008; Obtained through www.highbeamresearch.com 8
  9. 9. Competitive Analysis 1 2 3 Brand • Competitive pricing • “Bottom-line driven • Lower price, Strategy during peak season pricing”4 comparable taste • Value-add • Premium • Sentimental • Low-cost Position • Healthy • Natural • Effective use of • Brand recognition • Same-store promotions • Clear message promotion Strengths • Identify market • Innovator • Low-cost trends • High margins • Innovator • Concentrated • Concentrated • Smaller selection Weaknesses customer base customer base • Cannibalization • Price pressure1http://www.bettycrocker.com/products/progresso/Progresso-Product-Landing-Page.htm2http://www.campbellsoup.com/default.aspx3http://www.roboticjelly.co.uk/discount-soup-can.jpg4Michman, Ronald D., et al., The Food Industry: Marketing Triumphs and Blunders, Greenwood Publishing Group, 1998. P. 97-100.Other data obtained from Mintel Report: Soup (September 2008)
  10. 10. Progresso’s Pricing Strategy: Seasonal Aggressiveness Seasonality of Soup Sales Equivalent Unit Prices and Prices1 in 20071 $2.00 400 (Millions of Equivalent Units) Price per Equivalent Unit ($) $1.80 $1.60 350 Progresso Campbell’s 300 Canned Soup Sold $1.40 $1.20 250 Winter $1.46 $1.57 $1.00 200 $0.80 150 Spring $1.64 $1.70 $0.60 100 $0.40 Summer $1.84 $1.77 $0.20 50 $0.00 0 Fall $1.47 $1.53 Fall 05 Winter 05 - 06 Fall 06 Winter 06 - 07 Fall 07 Summer 05 Spring 06 Summer 06 Spring 07 Spring 08 Winter07 -08 Summer 07 Season Campbells Private Label Progresso Volume: All Canned Soup1 AC Nielsen
  11. 11. • Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels• Conclusion 11
  12. 12. Women Dominate Selection… Initiator Diet Programs Generation Z Gatekeeper Influencer Receptivity to Marketing & Advertising1 Baby Boomers Demographic Remember advertised products Shifts2 Generation X User 70% Decider Generation Y 60% 50% Hispanic Generation Z 40% Pay attention to Asian 30% commercials Black 20% 2008 10% White 0% 2050 (est) All Buyer Approver on Notice ads billboards 0.0% 20.0% 40.0% 60.0%1Mintel Report: Soups – US – 2008 1222008 US Census Bureau Report
  13. 13. …and Select Based on Flavor Criteria by Gender1 Criteria by Age1 Flavor Flavor Price Price Health Health Brand Brand 0% 20% 40% 60% 0% 20% 40% 60% All Female Male All Baby Boomers Generation X Generation Y NPS Progresso -57 Flavor carries the day in soup selection criteria Campbells -62 Chunky -85 Net Promoter Scores for major labels/brands demonstrate 0% 20% 40% 60% 80% 100% consumer’s “brand agnostic” Promoter Passive Detractor selection criteria 131Mintel Report: Soups – US -- 2008
  14. 14. Targeted Ethnic Opportunities With chicken With noodles With beef Black and Hispanic populations shows an Cream-based above-average interest in chicken, noodle, and vegetable-based soups Vegetable/vegetarian With beans Black, Asian, and Hispanic With seafood populations show an above-average interest in seafood soups 0% 20% 40% 60% 80% 100% All White Black Asian Hispanic 141Mintel Report: Soups – US -- 2008
  15. 15. • Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels• Conclusion 15
  16. 16. Progresso Soup: Product Length and Depth Sales in SKUs2 Positioning 2007 Progresso Soup Sales by ($ Million)1 Product Line1 Traditional 26 Taste 253 4 weeks ending 12/01/07 Vegetable 17 Taste 109 Classics Low Rich and Sodium 12 Taste 91 Hearty 11% Low Light 8 Healthy 53 Sodium 12% 26 (launched Traditional Light 5 (11) Healthy 43% 8/2007) Total 74 531 Vegetable 2 Classics 19% • Partnership with Weight Watchers3 – 6 SKUs with 60 calories, 0 points Rich and Hearty – 5 SKUs with 70 – 80 calories, 1 point 15% • $100 million in sales in first year41 JP Morgan Analyst Report from Jan 08, 20082 http://www.bettycrocker.com/products/progresso/progresso-products.htm3 http://www.generalmills.com/corporate/brands/product.aspx?start=P4 http://www.wtopnews.com/?nid=111&sid=1483005
  17. 17. • Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels• Conclusion 17
  18. 18. Growth of Soup Sales via Mass Merchandising 2008 Soup Sales By Retail Channel¹ Soup Sales by Mass Merchandisers: Mass Merchandisers • 21% growth from 2006-2008¹ / Other 22% • $206 Million¹ Drug stores Primarily causes: 2% • Rising energy costs • Higher priced consumer Food stores 76% packaged goods • Uncertain economic conditions 18¹Mintel Report: Soups – US -- 2008
  19. 19. Distribution Margins Manufacturer Distributor Retailer Consumer 2 1 3 4 36% / $0.38 23% / $0.31 23% / $0.41 $1.77 GIS Variable Unit Cost of % Margin Selling Price Margin in $ Soup $0.67 36% $1.05 $0.381 http://www.generalmills.com/stream_image.aspx?rid=51192 http://www.supervalu.com3 http://www.rsspieces.com/m/blogs/herrington/Kroger_New_Logo.jpg 194 http://www.generalmills.com/stream_image.aspx?rid=5119
  20. 20. • Executive Summary• Industry Overview• Company Analysis & Competitive Landscape• Customer• Product• Distribution Channels• Conclusion 20
  21. 21. The Road Behind, The Road Ahead Strengths Weaknesses• Going outside for innovative • SKU proliferation without technology in new products growth in shelf presence• Partnerships/first mover on • Market share trends • Long-term liquidity• Good turn-over on booked sales1 Opportunities Threats• Continue exploring healthy • Campbell’s push into eating options Premium offerings2• Targeted ethnic-based • Private label growth marketing programs • Strong-armed by influential• Streamline future productions distributors3 via capital investments • Commodities prices and effects on inventory1 AC710Presentation by Six Sigmas on General Mills; GIS: Financial Ratios. investing.businessweek.com2Campbell’s Select Harvest Website URL: http://www.campbellsoup.com/select.aspx 213”Wal-Mart cuts food prices by up to 30%”, Mintel, 20 June 2008
  22. 22. Appendix
  23. 23. Margin Calculations From 10K % Gross General Unit cost Selling Price Margin (In $ Supervalu Kroger margin Mills Millions) General $0.67 35.7% $1.05 $0.38 Mills net sales 44,048 70,235 13,652 Supervalu $1.05 23.4% $1.36 $0.31 cost of sales 33,943 53,779 8,778 Kroger $1.36 22.9% $1.77 $0.41 gross margin 10,105 16,456 4,873 Consumer $1.77gross margin % 22.9% 23.4% 36.7% Method: 1. Obtained 10K filings from Supervalu, Kroger, and General Mills and pulled the reported Net Sales and Cost of Sales. 2. Determined the gross margin as a percent of net sales and used these margins as the gross margin on Progresso soup (see Table on Right, Column 3). 3. Starting with $1.77 (obtained from AC Nielsen) for one can of Progresso soup, determined the unit cost for the retailer, distributor, and General Mills using % gross margins calculated in Step 2 to obtain $0.67 as the cost of one can of Progresso for General Mills. Assumptions: The % gross margin on a can of Progresso soup is the same as the average company % gross margin for all 3 channels. Supervalu and Kroger’ gross margins on soup are representative margins on Progresso soup for the food distribution and retail grocery industries.
  24. 24. Projected cash flows NPV Calculations in $ million $113.42 $115.79 $118.86 $112.14 $125.27 $128.62 r = 6.40% per year1 2009 2010 2011 2012 2013 2014 Year-end 2008 NPV of Progresso = present value of these expected cash flows = $621 million Projected Total Progresso Projected Sales of TABLE 2 Soup Sales % Gross TABLE 1 RTS Soup Projected Gross Profit Progresso Ex. 2008 ($ million) Margin Year Sales2 Gross Profit ($ million) ($ Million) ($ Million) ($ Million) General Mills 204.30 35.7% 113.422007 actual 1,609 532.0 112.17 Supplier 317.74 23.4% 94.362008 1,627 538 113.42(projected) Retailer 412.11 22.9% 125.882009 (forecast) 1,661 549 115.79 Customer 5382010 (forecast) 1,705 564 118.86 Method: 1. Calculated the market share of Progresso soup (33% of RTS, see 2007 data2011 (forecast) 1,752 579 122.14 from Table 1) 2. Using the projected and forecast data for total RTS soup sales over 2008 –2012 (forecast) 1,797 594 2013 found on Mintel, extrapolated the projected sales of Progresso over the 125.27 same time span (Table 1, Column 3) as a fixed percentage of total RTS soup sales using their market share percentage from 2007 (ex. in Table 1, Row 2:2013 (forecast) 1,845 610 128.62 $1,627,000,000 x 0.33 = $538,000,000 projected Progresso sales) 3. For each year, calculated projected gross profit for Progresso from projectedAssumptions: sales of Progresso using the margin analysis described earlier (see previousCash flows (i.e. projected gross profit) occur at end of calendar year slide and Table 2)Prices of soup stay constant 4. Placed all projected gross profits per year (i.e. the projected cash flows fromProgresso’s market share stays constant Progresso for years 2008 – 2013) in time lineConsumer Sales at current prices 5. Consider 2008 as year 0.General Mills, supplier, and distributor margins all stay the same 6. Calculated the Net Present Value of all projected cash flows at r = 6.40% perPrime year rate is the appropriate interest rate measurement for Progresso year (the trailing five year average of prime rate from 2003 – 2008) as ofTrailing five year average of prime rate (2003-2008) is representative of theaverage of prime rate (2009-2013) year-end 2009.

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